Mr. Chairman, there are several principles that should guide
our use of economic sanctions.

Properly designed, implemented, and applied as part of a
coherent strategy, sanctions, including economic sanctions, can
be and are a valuable tool for enforcing international norms and
protecting our national interests. At the same time, Mr.
Chairman, sanctions are not a panacea and they are not cost-free.
The frequency with which we have turned to sanctions has
increased dramatically, particularly since 1993. The U.S. has
applied sanctions for foreign policy purposes a total of 115
times since World War I, 104 times since World War II, and
according to the count of the President's Export Council, 61
times since 1993. Thus more than half the sanctions imposed in
the past 80 years have been imposed in only the past four years.
These figures do not include the increasing use of sanctions at
the state and local levels. Our object must be to learn from our
growing experience, to draw the appropriate lessons so that we
can find the best, the most effective way to employ this
potentially powerful tool while minimizing the adverse costs.

Used in an appropriate way, economic sanctions can be an
effective means to further U.S. policy goals. Used under
inappropriate circumstances, they can actually impede the
attainment of our objective and come at a significant cost to
other U.S. policy objectives.

Since October both we in the Administration and you in the
Congress have sought to use sanctions, or the threat of
sanctions, as a tool to advance our policy interests in several
different cases, sometimes effectively, sometimes less so.

-- On November 4, the President, acting under his authority
under the International Economic Emergency Powers Act
(IEEPA), imposed a comprehensive economic embargo on the
Sudan in response to that country's gross violations of human
rights, including religious freedom, its continuing support
for international terrorism and its attempts to disrupt the
Middle East peace process. Although others have not joined
us in our comprehensive economic embargo, we are nonetheless
working successfully with our allies to block the flow of
arms and munitions into that war-torn country.

-- We have used the Iran-Libya Sanctions Act to advance our
policy objective of deterring Iran from acquiring weapons of
mass destruction and supporting terrorism.

-- We have used the Libertad Act to achieve for the first time
an agreement which will impose international sanctions on the
acquisition of illegally expropriated property, not just in
Cuba but worldwide.

-- We have begun to apply costly unilateral economic sanctions
to India and Pakistan in response to those countries' recent
nuclear tests.

-- The Congress has also continued to consider legislation
authorizing or imposing unilateral economic sanctions. The
House recently passed the Wolf-Specter Anti-Religious
Persecution Bill which imposes automatic unilateral sanctions
on "gross violators." Similar legislation is currently being
considered in the Senate. The Senate also recently passed
the Iran Missile Proliferation Act of 1997, which was passed
by the House last year, and this legislation is expected to
reach the President's desk shortly.

-- Unilateral sanctions are also being considered by individual
states and localities--for example, Massachusetts has
actually imposed sanctions on companies that do business in
Burma. Maryland has considered, and rejected, imposing
sanctions on Nigeria. Several states and localities have
under active consideration, or they have actually imposed,
sanctions against Swiss banks for their past actions
regarding dormant accounts of Holocaust victims. In
addition, several states are considering, or have actually
passed, legislation on insurance relating to Holocaust
claims. While I share the objectives of the sponsors of such
actions, I believe that sanctions are not merited at a time
when we are obtaining cooperation from the major Swiss banks
and European insurance companies. Moreover, I think such
actions are likely to be counter-productive. As we have
demonstrated in recent months, we can achieve much more
through cooperation than through confrontation.

The Hamilton-Crane-Lugar Sanctions Reform Bill introduced in
October of 1997 seeks to impose discipline on our increasing
resort to unilateral economic sanctions as a policy tool of
choice.

Following are the principles that we believe should guide our
use of this tool:

Economic Sanctions a last resort

Economic sanctions should not be a first resort against
countries whose actions threaten our interests. Our first line
of action against other countries should be to aggressively
pursue all diplomatic options that are available to us. Such
measures can range from the symbolic, like withdrawing an
Ambassador or reducing Embassy staff, to denying visas to target
figures, entering into security arrangements with neighboring
countries, and, as an ultimate resort, military intervention and
everything in between. We should also not forget the power of
positive inducements -- rewarding desired behavior. Economic
sanctions involving restrictions on the private sector, when they
are unilateral, should be considered only after these alternative
prior measures have been aggressively pursued and have failed or
have been judged inadequate or inappropriate.

Multilateral Sanctions are more Effective

Sanctions are most effective when they have broad
multilateral support and participation. Multilateral sanctions
maximize international pressure on the offending state. They
show unity of international purpose. And, because they are
multilateral, these sanctions regimes are more difficult to evade
or avoid. Also, multilateral sanctions minimize damage to U.S.
competitiveness and distribute more equitably the sanctions
burden across responsible countries. We should make a maximum
effort to develop a multilateral sanctions regime in instances
when sanctions are a viable option, and should give a reasonable
period of time to develop an international consensus for such
sanctions.

Multilateral support is essential if sanctions are to be a
truly effective means for influencing the policies and behavior
of other countries. We live today in an interdependent, global
economy. The ability of the United States to unilaterally deny
key economic benefits to a target country is sharply limited.
There are few products or services for which the United States
is the sole supplier. Perhaps even more importantly, the world
is increasingly multipolar with respect to political and security
concerns as well, ultimately decreasing U.S. leverage on
individual states.

It has become clear in Bosnia, Kosovo, Cyprus, Ireland, and has
been clear for decades in the Middle East, that U.S. leadership
on conflict resolution is essential. We have the responsibility
to lead and we are not afraid to do so, even if it means, at
times, that we act alone. But in the post Cold War world, we
must also recognize that though we are an essential and
indispensable force for peace and stability, we alone are not
sufficient to resolve the world's pressing problems. We need the
support and cooperation of like-minded nations. We can do a lot
alone, and there will be times when we must act alone, but we can do a lot more with support from others.

We are disappointed by our allies' response on a range of
issues from Iran to Sudan, Burma, Nigeria, and Cuba. But we will
not succeed by attempting to force our allies to our position.
We need to lead them. We need to take the time to build a
consensus. A lower intensity of sanctions can have a greater
effect than more draconian sanctions applied by the United States
alone.

We also need to recognize that unilateral measures,
especially those that others charge are "extraterritorial,"
complicate our efforts to build multilateral support.

Consultative mechanisms with countries that share our goals
can be helpful on issues of critical concern. While such
mechanisms do not guarantee results, the absence of such a
mechanism can almost certainly guarantee failure to garner
multilateral support.

We must be prepared to act unilaterally

If we are unsuccessful in building a multilateral regime, and
important national interests or core values are at issue, we must
be prepared to act unilaterally. We cannot permit other
countries to veto our use of sanctions by their failure to act.
Our primary considerations in any eventual application of
unilateral sanctions must be whether they are effective, whether
they are part of a coherent strategy to change behavior, whether
they contribute to or detract from our efforts to gain
multilateral support for our policy objectives, and whether they
are consistent with our international obligations and
humanitarian principles. There should be a careful balancing of
benefits against costs; that is, do the likely benefits of
sanctions outweigh the economic losses to our businesses and
workers? There should be some reasonable expectation that the
specific sanctions measures will have a significant impact on
those targeted, that there is some expectation they can be
effectively implemented and enforced, that they will not cause
more collateral damage than the wrong they are trying to remedy,
and that due consideration is given to the potential adverse
impact on vulnerable foreign populations. We must try, whenever
possible, in any unilateral sanctions regime to target the
sanctions directly on the offending country itself, or even
better on the offending entities or individuals in that country,
rather than on businesses in third countries.

Effectiveness means improved behavior

Sanctions should seek to influence, not simply to punish. Our
measure of success must be effectiveness: what combination of measures can be assembled among like-minded countries to force or
induce a change in the conduct of the offending state? That is,
after all, the objective. If the best we can do is to act alone,
so be it, but we owe it to the American people to exhaust other
diplomatic measures first and have some reasonable prospect that
our unilateral measures will have the intended effect.

Cost should be proportional

Specific sanctions measures should be designed carefully so
that, to the maximum extent possible, the target country absorbs
the costs rather than placing them disporportionately on innocent
people and on our business community and citizens. Sanctions
should be constructed so as to minimize the cost to the U.S. and
its allies while extracting maximum leverage.

Sanctions that are ineffective, that impose substantially
more costs on U.S. interests than on the sanctioned country, that
are unable to garner broader support even among our closest
allies, do not send a message of U.S. resolve, or U.S.
commitment. Rather they send a message of U.S. irrelevance.
Sanctions that are ineffective, that are easy to evade or avoid,
that are imposed merely to "make a statement," are not only
pointless in achieving our objectives, but in the longer run
debase and undermine the value of sanctions as a foreign policy
tool.

Sanctions Decisions require Policy Harmony

If our policies are to be effective, we must work together--Administration, Congress, governments at the state and local
level, the business community, NGOs--to see that our use of
sanctions is appropriate, coherent, and designed to attract
international support. Congress should go through the same
careful consideration and balancing of interests as the Executive
Branch. There must be more structured, systematic discussions
between the Executive Branch and Congress when sanctions are an
option.

The Hamilton-Crane-Lugar Sanctions Reform Bill is a good example
of the kind of effort we need to make to improve the dialogue
between the Congress and the Administration on sanctions issues.
We agree with many of the ideas proposed in the bill - to
encourage sanctions policy-making to be conducted in a deliberate
and thoughtful manner, taking into consideration all factors
relevant to the sanctions decision. At the same time, we do not
believe that Congress should require the Executive Branch to
comply with specific procedures in its internal decision-making
processes or should otherwise interfere with the ability of the
Executive Branch to decide substantive issues in conducting
foreign relations. Such legislatively mandated provisions can
undermine the President's prerogatives in the conduct of foreign relations. We are willing to work with Congress to perfect the legislation.

The President needs Flexibility

The President should have the authority to tailor specific
U.S. actions to meet our foreign policy objectives. We recognize
important Congressional prerogatives in foreign policy, in
particular where economic sanctions are involved. This
Administration, or any Administration, must take into account
Congressional concerns over foreign affairs questions. At the
same time, the President is, of course, responsible under the
Constitution for the conduct of the nation's foreign policy.
Ideally, our foreign policy should be the product of a bipartisan
consensus focusing on U.S. national interests. One expression
of that constitutional responsibility and comity between branches
of government is expressed in sanctions legislation through the
inclusion of appropriate Presidential waiver authority.
Ultimately only the President can weigh all the issues at stake
at any given moment and tailor our response to a specific
situation. Legislation should set forth the broad objective but
should allow the flexibility to respond to a constantly changing
and evolving situation.

In this regard, there are two particular pieces of
legislation, Mr. Chairman, which are of particular concern: the
Iran Missile Proliferation Act of 1997; and the Wolf-Specter
Anti-Religious Persecution Bill, which passed the House by a
large margin. The President's senior advisors are recommending
that the Iran Missile Proliferation Act of 1997 be vetoed because
of its low standard of evidence, its unworkable waiver standard,
and because its inflexible and indiscriminate requirement to
impose sanctions would be counterproductive to our
nonproliferation objectives.

Similarly while we strongly support the goals of the Wolf-Specter Freedom from Religious Persecution Act of 1998, the
President's senior advisors have also said that they would
recommend a veto of the Wolf-Specter Bill if passed in its
current form, because of its automatic sanctions, the confusing
bureaucratic structure it would create, and the inappropriate
hierarchy of human rights violations in U.S. law the bill would
establish. We believe that enactment of the bill would undermine
many of our important foreign policy interests, including
ultimately the bill's own goal of helping those who face
religious persecution.

Mr. Chairman, this rapid pace of change, sometimes unanticipated
change, highlights the absolutely critical need for flexibility
in the application of economic sanctions. Simply put, without
flexibility we will not be able to tailor our actions to meet our
foreign policy objectives. There can be no "one-size fits all"
approach. Only the President can balance all the factors. It is important the President have the flexibility to respond in an appropriate fashion to changing
circumstances. That flexibility also provides the President
appropriate leverage to achieve the statute's goals while
minimizing collateral damage to other important national
interests. If the Congress feels that he has not struck the
right balance, then oversight and criticism in a spirit of comity
are appropriate, but not removal of the President's discretion --
that would make for bad policy.

Using these general principles as a standard against which to
grade our - and your - efforts, Mr. Chairman, I would like to
focus on three specific cases where the actual use or prospect of
unilateral economic sanctions was an integral part of our policy:
our use of ILSA on Iran and Helms-Burton on Cuba to advance our
cooperation with the European Union.

Mr. Chairman, to illustrate and underscore these guiding
principles, I would like to focus on two specific cases, the
Libertad Act and the Iran-Libya Sanctions Act. In both cases the
prospect of sanctions rather than their use effectively achieved
greater cooperation in support of the Acts' objectives without
upsetting our political and economic relations with our allies
and friends. In the Helms-Burton case, we decided our success
with the property disciplines we agreed upon with the EU merits
seeking authority to waive Title IV.

In the ILSA case, we used the flexible authority provided by
the Congress to advance the purposes of the law. In so doing, we
determined, after weighing our interests, that the imposition of
sanctions would be counterproductive to the original
Congressional objectives. This flexibility, as represented in
the waiver authority Congress wisely gave the Executive Branch
under ILSA, is a model for how Congress and the Executive Branch
can successfully work together on sanctions issues, and precisely
why it is important that the President be afforded similar
discretion in other sanctions laws now under consideration.

U.S. EU Summit

At the President's May 18 Summit with European Union leaders,
including UK Prime Minister Tony Blair acting in his EU
Presidency capacity and European Commission President Jacques
Santer, we made considerable headway in advancing our policy
goals on sanctions relating to Cuba and Iran

Libertad Act

Mr. Chairman, with encouragement of Congress, the
Administration has made a major effort to bring other nations
more fully in support of the objectives of the Libertad Act. I
have been a strong defender of the Libertad Act against all
critics, foreign and domestic, in the United States, around the
world -- from Mexico and Central America and through Europe. I
am pleased to report that by holding out the possibility of a
waiver of Title IV, if the EU would agree to disciplines on
investments in illegally expropriated properties, we have made an
historic breakthrough. The Understanding we reached with the EU
on May 18 builds on the Libertad Act, and for the first time,
establishes multilateral disciplines among major capital
exporting countries to inhibit and deter investment in illegally
expropriated properties.

These restrictions will discourage illegal expropriations and
chill investments in illegally expropriated properties. Taken in
their entirety, they warn investors to keep "hands off" illegally
expropriated properties. They will send an unequivocal message
to any country that engages in repeated illegal expropriations
that it is not deserving of a normal economic relationship with
other states.

As part of the May 18 Understanding, the Europeans have
acknowledged that Castro's expropriation of U.S. property
"appears to be contrary to international law." This conclusion,
and the rest of the Understanding, represent the first such
collective acknowledgment by the Europeans since the Cuban
revolution that Cuba has engaged in illegal expropriations of
U.S. property. It says clearly that it is no longer business as
usual with respect to these properties. That message has landed
hard in Havana. Fidel Castro understands the significance of our
accomplishment and appreciates the serious threat it represents.
He has condemned the Understanding "as an internationalization of
the principles of the vile Helms-Burton Law." He decries it as
"a pact . . . between the United States and the European Union
with the purpose of strengthening the blockade of Cuba."

Let me outline for you the key elements of the Understanding.

Where states expropriate property inconsistent with
international law in the future, investment in such property will
be barred.

A Registry of Claims will be established to warn investors
and agencies providing support or assistance that a property has
a troubled past. It will be open to any claimant who alleges
that its property was expropriated in contravention of
international law. If basic information is provided by the
claimant, the claim will be included. There will be no screening
out of claims.

Where illegal expropriations have already taken place,
government support or commercial assistance for transactions
related to such properties will be denied. This means:

-- no government loans;

-- no government grants;

-- no government subsidies;

-- no government fiscal advantages;

-- no government guarantees;

-- no government political rise insurance; and

-- no government equity participation.

It also means no government support or advocacy, through
embassies, or commercial, foreign and trade ministries, for such
transactions. Lists of expropriated properties will be published
and investment actively discouraged.

Not only will the disciplines apply to cases of future
acquisitions from the expropriating state, but they will apply to
transactions with respect to existing investments that involve the
acquisition of new rights, including the renewal of leases or
management contracts, or the acquisition of new mineral rights. This
will fence off existing investments and severely limit new
transactions by those investors.

International financial institutions such as the IMF and the World
Bank will be urged to adopt programs and policies to discourage
investment in illegally expropriated properties.

Tough measures will apply to countries, such as Cuba, which have
an established record of repeated expropriations in contravention of
international law. Participants will review all requests for
government support and assistance for investments to ensure that the
transaction does not involve illegally expropriated property before
providing any support or assistance. If expropriated property is
found to be involved, the support or assistance will be denied and the
property will be added to the published list. No support or
assistance will be provided unless and until this evaluation has been
performed. Close contacts between the EU and the United States will
be maintained on requests for assistance. The U.S. will have the
opportunity to provide additional information, and will be informed of
the decision.

Of paramount importance, the Europeans now acknowledge in writing
that one of the primary tools that the Castro regime used in its mass
expropriation of property from U.S. citizens "appears to be contrary
to international law". Based on this conclusion, they state it is
"reasonable to assume" that the disciplines will apply to certain
expropriations of U.S. citizens' property under this law, and if these
expropriations are "typical of other expropriations," to them as well.

The disciplines will also benefit U.S. citizens whose property was
confiscated by the Castro government before they became American
citizens. The registry will be open to the claims of all Americans
who allege that Castro violated international law by expropriating
their property in contravention of international law. The knowledge
that properties on the Registry have a troubled past will flash a
yellow light at investors as well as investment promotion and
assistance agencies that are likely to prefer to devote their
resources to less troubled properties. Coordinated action in
international financial institutions to discourage illegal
expropriations and investment in properties subject to them, as well
as the general caution that investors will bring to bear when
considering investment in Cuba, will benefit them as well.

Taken in their entirety, these disciplines will effectively deter
investment in confiscated property, and discourage investment in Cuba in general by accentuating the high risk of such investment in several ways:

First, they accentuate Cuba's scandalous record of illegal
expropriations.

Second, they highlight to potential investors the serious risk
that any investment in Cuba could turn out to involve expropriated
property.

Third, they proclaim the U.S. and the EU's strong disapproval of
investment in illegally expropriated property.

Fourth, they proclaim that, from this day forward, any investor
who becomes involved with expropriated property can expect
absolutely no help or assistance from their governments, and will
stand naked in an insecure and dangerous environment.

It is these factors, their predictable impact on investment in
Cuba, and the broader political significance of the European judgment
for Cuba policy in general, that has infuriated Fidel Castro. He
understands only too well that this Understanding is an effective
multilateral endorsement of some of the core principles underlying
Helms-Burton. He appreciates that a multilateral commitment to apply
these disciplines will have a more profound effect than individual
unilateral determinations by the U.S. It is for this reason that we
expect he will do all he can to undermine the Understanding.

The Administration does not intend to let that happen. We have
agreed in principle with the EU to meet in the next few weeks to begin
preparing for implementation of the Understanding. This will include
work on the establishment of the registry, and giving effect to the
commitment to prevent investments with respect to future
expropriations.

We also intend to prepare a joint proposal to incorporate the
disciplines into the Multilateral Agreement on Investment under
negotiation in the OECD. The MAI will provide the opportunity to
expand the arrangements to include a wider range of countries. Even
before the MAI is concluded, the Understanding calls for U.S. to
consider including other interested states and we intend to be active
on this front.

To realize all the gains provided by the Understanding, we need
Congressional support. The EU will begin to implement these
strong disciplines simultaneously with the receipt of a waiver
from the provisions of Title IV of the Libertad Act. Thus, we
will work closely with the Congress to seek early action on
legislation to authorize the President to waive the provisions of
Title IV will respect to countries implementing the disciplines.
We believe that such a waiver should benefit only countries that
are implementing the Understanding. It should not be time
limited, but should provide authority to withdraw the waiver if a participant fails to live up to the Understanding. I can assure you that the
Administration would be prepared to revoke such a waiver should a
participant fail to implement it faithfully.

This Understanding presents United States with a unique and
pathbreaking opportunity to establish new levels of protection of
property rights globally through multilateral disciplines. It builds
on the success of the Libertad Act in protecting the interests of U.S.
citizens whose properties were seized illegally by the Cuban
government, and it will reinforce our broader Cuba policy objectives.
The realization of the potential of the Understanding will require
close cooperation between the Administration and the Congress. My
testimony today is only one step in an ongoing process.

On May 18, the Secretary made a determination, pursuant to the
authority delegated to her by the President, that the investment by
the firms Total (France), Gazprom (Russia), and Petronas (Malaysia) in
the development of Iran's South Pars gas field constitutes
sanctionable activity under ILSA. This determination followed an
extensive review of the facts of the case as they relate to the
provisions of the law. At the same time, the Secretary, under the
authority of Section 9(c) of the Act, determined that it is important
to the national interest to waive the imposition of sanctions against
the three firms involved. The Secretary did not believe that waivers
under Section 4(c), which require that countries agree to take
"substantial measures, including economic sanctions" to inhibit Iran's
acquisition of weapons of mass destruction and support of terrorism,
were appropriate.

I would like to emphasize, Mr. Chairman, granting the waiver does
not mean that we support this investment. We do not. We remain
deeply concerned about Iran's support for terrorism and efforts to
acquire weapons of mass destruction. While there are indications that
the Iranian government may be trying to improve its relationship with
the West, we have not seen substantial change in those Iranian
policies of greatest concern. ILSA's focus on the dangers of Iranian
WMD and terrorism thus continues to be of capital importance. Mr.
Chairman, as you are aware, we made vigorous and repeated efforts to
stop the South Pars investment, including representations from the
highest levels of our government to counterparts in the other
governments concerned. But we did not succeed.

We did have some degree of success in another case. Partly as a
result of our efforts, the Indonesian firm Bakrie has apparently
decided not to proceed with the development of Iran's Balal oilfield, though the impact of the Asian financial crisis was also important to the company's decision. This has delayed the investment of Bakrie's Canadian partner, Bow Valley Energy, which must now seek new partners to replace Bakrie and to
provide the financial resources necessary to carry out the
project.

As we were making every effort to stop the South Pars
investment, we simultaneously and seriously considered the
imposition of sanctions. We made an exhaustive examination of
how ILSA sanctions would have affected the three firms involved
in the South Pars project. All three, for varying reasons, are
insulated from any practical negative impact of the imposition of
sanctions. Total divested many of its U.S. assets prior to
entering into the contract for South Pars. Gazprom canceled
possible transactions of up to $750 million under a 1994
Memorandum of Understanding with the U.S. Export-Import Bank.
Petronas has only limited connections to the United States. It
was clear that the companies were prepared to proceed with this
project, even in the face of the potential sanctions in our laws.
We concluded that the imposition of sanctions would not prevent
the South Pars project from proceeding, though such a step would
have had major negative effects on other U.S. interests.

The Secretary's determination reflects an assessment that in
this case, the national interest waiver which Congress wrote into
Section 9(c) of the Act was by far the most effective way to
serve overall U.S. interests, and to advance the fundamental
objectives of ILSA --constraining Iran's ability to acquire
weapons of mass destruction (WMD) and delivery systems, and its
ability to support terrorism. Congress was wise to provide the
President with this authority, which we have used with great care
to achieve the purposes of the statute. A waiver (1) helps
consolidate the gains that we have made with the EU and Russia on
strengthening international cooperation to oppose Iranian
policies; (2) lays the foundation for further progress in this
vital area; (3) enhances our ability to work with Europe, Russia,
and Malaysia on bilateral and multilateral concerns many of which
we have outlined below; and (4) avoids a major dispute with
allies and friends which could have led to trade retaliation and
reduced cooperation on WMD and other efforts.

In stark contrast, a decision to sanction would have
undermined our efforts at multilateral and bilateral cooperation
and would not have stopped the South Pars deal.

In developing the ILSA legislation, Congress expressed its deep
concern about Iran's pursuit of WMD and support of terrorism. It
asked the Administration to address these problems, and provided
in ILSA --with its provisions both for imposing and for waiving
sanctions, and its emphasis on multilateral cooperation-- a "double-edged" tool for doing so.
In the negotiations which culminated at the recent Summit, we
used this tool to great advantage. We have achieved significant,
enhanced cooperation on our Iran-related concerns with the
European Union, with whom cooperation was already at a high
level, and with Russia, which has put into place for the first
time the legal framework and detailed regulations for a "catch-all" export control system. Implementation has begun but we
recognize that sustained and rigorous implementation will be
crucial with the Russians. We will have to continue to monitor
the implementation process closely.

Until such time as Iran has begun to change its own behavior,
it is particularly crucial to work at the "supply end" of a
problem such as Iranian WMD development --that is, to deny Iran's
access to sensitive materials and technology by working closely
with the countries which are potential sources for these items.
ILSA recognizes this, through the emphasis it puts on building
multilateral cooperation.

The outcome of this case represents a signal success. It is
a success both because of what we were able to accomplish and
what we were able to avoid.

Let us look in more detail at what we have achieved in terms
of constraints which affect Iran in the areas of WMD and
terrorism. Even before the recent agreements at the May 18 US-EU
Summit, the high level of cooperation on nonproliferation that
existed with EU members --for example within all the major
multilateral export control regimes-- was crucial to stemming
Iran's efforts to acquire weapons of mass destruction, including
missile delivery systems and related technologies.

Given this high level of existing cooperation, the joint US-EU statement on nonproliferation, announced at the Summit, does
not break major new ground. Nevertheless, it emphasizes the
importance of denying assistance to WMD and delivery-system
programs, and outlines meaningful additional steps the EU is
taking to further strengthen member-country policies in this
area. The statement makes explicit reference to Iran in the
context of shared U.S. and EU concerns about efforts by some
countries to acquire missile technology and produce weapons of
mass destruction. The EU undertook to pursue such concerns in
its political dialogue with these countries, "notably Iran."

The statement also highlights the importance of stepped-up
diplomatic cooperation to halt WMD-related and missile technology
transfers to proliferators. Specifically with respect to an
issue of key importance to U.S.-Russian technological assistance
to Iran's ballistic missile program-- the statement documents the fact that European leaders and Foreign Ministers have raised their concerns about such activity directly with their Russian counterparts. We know of numerous
specific occasions when such representations have been made and
they undoubtedly contributed to the recent positive developments
on this issue.

As noted in the statement, the EU has adopted a
comprehensive, legally-binding regime of dual-use export controls
which include stringent "catch-all" provisions covering equipment
that might be used in connection with WMD programs. Particular
stress is laid on the importance of giving greater scrutiny to
end-users previously associated with WMD development. The
statement also embodies an EU commitment to improve cooperation
with us on export control implementation in a variety of ways:
enhanced bilateral information exchanges on nonproliferation;
closer coordination of export control assistance programs to
third countries; and sharing export control "best practices,"
including means to strengthen end-use verification and prevent
diversion.

The EU is also undertaking to improve its controls over
technology transfers which involve "intangibles" --for example
training and "know-how," computer software, design technology and
products such as plans and blueprints-- and transfers which
involve advanced means of communication such as the Internet. As
the statement notes, we are strengthening consultations and
sharing ideas on these issues.

On counterterrorism, we also enjoy a very high level of
cooperation with our European partners. The May 18 Joint
Statement on Counterterrorism reinforces the EU's commitment to
work closely with the U.S. on promoting greater international
cooperation and on coordinating efforts to combat terrorism in
all relevant bilateral and multilateral fora. The statement also
identifies specific common objectives. Shared concerns and joint
efforts are noted in such areas as terrorist fund-raising,
chemical and biological terrorism, and the Middle East Peace
Process (MEPP). In connection with the MEPP, the statement
underscores the EU commitment to enhance the effectiveness of the
Palestinian Authority (PA) in counterterrorism, including an
extensive program of human rights training. The EU established a
Joint Security Committee with the PA in April 1998.

We are also working with EU members and other countries to
ensure universal ratification of all eleven counterterrorism
conventions. The EU will be giving particular attention
obtaining adherence to the conventions by Central and Eastern
European states that are seeking EU membership. In addition, the
EU will press Iran, through the renewed EU-Iran dialogue, to
ratify the seven conventions that it has yet to sign.

Russia has announced new undertakings, including a January 22
Executive Order that strengthens the government's authority to
control missile technology and other transfers of concern. As a
result of a subsequent Executive Order issued on May 14, 1998,
the Russian Government is now taking significant steps to
implement the January order to ensure compliance. The new
Russian system will: establish supervisory bodies in all
enterprises dealing with missile or nuclear technologies, to
ensure compliance with relevant regulations; set procedures for
exporting enterprises to ensure proper controls, and outline "red
flags" which indicate that a proposed purchaser is not
legitimate; give the Russian Space Agency responsibility for
oversight of the space rocket industry; and establish a range of
measures for licensing military exports. The positive start of
our joint export control working group is another promising step.

Do we consider this major progress? Yes. Are we fully
satisfied? Of course not. While the Russian Government is
acting to implement fully President Yeltsin's policy,
considerable work remains to be done as we have highlighted in
our briefings to the Congress. It cannot yet be said that all is
well, and we will remain closely engaged with the Russian
Government at all levels to ensure effective enforcement.

The important thing to recognize, however, is that the will
to control these exports and, for the first time, the basic
mechanisms to do so, are in place. Moscow has accepted the
gravity of the problem and clearly stated its policy. President
Yeltsin's May 4 public statement and his speech of May 12, along
with strong statements by Prime Minister Kiriyenko, are important
reiterations of Russia's commitment to stop the spread of missile
technology. Implementation has begun. President Yeltsin, in a
bilateral meeting on May 17 during the G-8 Summit in Birmingham,
England, emphasized to President Clinton his personal
determination to use all the powers of his office to stop
sensitive technology transfers to the Iranian missile program.
While remaining vigilant, we need to nurture this cooperation
with a Russian leadership which is willing to address vital
nonproliferation issues and to work with them to make Russian
controls increasingly effective. Our decision in the South Pars
case strengthens our ability to do this.

We have also made nonproliferation progress regarding Iran
with other countries. For example, Ukraine recently agreed to
forgo all nuclear cooperation with Iran, including canceling the
sale of turbines destined for Iran's Bushehr nuclear plant.

Because of the involvement of Petronas, the state petroleum
company, in this deal, we focused closely on Malaysia. Malaysia
has not been actively engaged with us on proliferation issues,
nor has it been a source of nonproliferation concerns.

It has acted as a force for moderation in Islamic circles.
Malaysia is our partner for the upcoming session of the U.S.-ASEAN Dialogue, which will address for the first time the
establishment of export control procedures. Sanctions against a
major Malaysian company in the midst of the Asian financial
crisis could be detrimental to Malaysia and other countries in
the regions, and could harm our ability to address the crisis.

In choosing among the options under the Act available to her,
the Secretary also took into account a number of other national
interest factors. Waivers will enhance our ability to work with
the Europeans, Russia, and Malaysia on a host of other bilateral
and multilateral concerns. These include:

-- Russian cooperation on nonproliferation, and progress on
internal economic and political reform. On this last point,
President Clinton has spoken often of America's stake in
Russian democracy; as he said recently in Berlin, "We must
support this Russian revolution."

-- Resolution of differences over Helms-Burton, including new
disciplines to deter investment in illegally expropriated
property worldwide, including in Cuba, and further EU support
for democratic change and human rights in Cuba, and creation
of a new US-EU initiative to liberalize trade. Positive
results on these issues were achieved at the US-EU Summit.

-- Multilateral cooperation on Iraq to maintain the isolation of
Saddam Hussein and to bring about compliance with UNSCR
obligations, including cooperation with UNSCOM/IAEA
inspections.

-- Progress on Kosovo and Bosnia, where cooperation of our NATO
allies is essential, and on other European security issues.

-- Cooperation with European and Asian partners, including
Malaysia, in addressing the Asian financial crisis and the
rapidly unfolding events in Indonesia. We were also
concerned about the effect of sanctions on a major Malaysian
company at a time when Malaysia is feeling the serious
effects of the crisis.

Granting waivers in this case has also averted potential
retaliation against U.S. firms, which the imposition of sanctions
might engender, and avoids possible legal challenges based on
claims related to treaties and other international obligations.
These considerations buttress the view that a waiver in this case
best serves our national interest.

Fundamentally, we believe with respect to the South Pars case
that sanctions would have been counterproductive to our ongoing efforts to broaden international cooperation to seek
change in Iran's objectionable policies. In the case of EU
member states, cooperation on these issues is already at a high
level and, through the commitments we have received, will be at
an even higher level in the future. We are narrowing our
differences with the Europeans on Iran which were a source of
comfort for Iranian leaders in the past. Assuming the EU
continues this enhanced level of cooperation, we expect that a
review of our national interests in future ILSA cases similar to
South Pars involving the exploration for or production of Iranian
oil and gas resources would result in like decisions with regard
to waivers for EU companies. In the case of Russia, while we are
encouraged by the recently agreed steps to combat the transfer of
technology to countries of concern, we will continue, as I
indicated earlier, to monitor closely Russia's implementation of
its policies on transfers of missile and other technologies of
concern, and to work closely with the Russian government to
ensure prompt and effective enforcement.

In announcing our decision in this case, we reiterated that
we remain strongly opposed to oil and gas pipelines which transit
Iran and that, as a policy matter, we will continue to encourage
alternative routes for the transport of Caspian energy resources,
such as trans-Caspian pipelines and the Baku-Ceyhan route, and
the Caspian Pipeline Consortium route. We will carefully examine
any proposals for trans-Iranian pipeline construction for
possible implications under ILSA, and any other relevant laws,
and take appropriate action. In view of our strong opposition to
such pipelines, we intend to continue to challenge them.

Given our continuing concern about Iranian behavior, we
expect our friends and allies to take appropriate steps in
response to Iranian involvement in terrorist activities. We will
periodically review the impact of ILSA cases and our waiver
policy on the national interest.

Let me say a word about our opposition to petroleum-sector
investments in Libya. I make this point because I want to answer
comments, such as the statement attributed to Italian Foreign
Trade Minister Fantozzi, which have been made about our policy
with respect to Libya in the context of the South Pars decision.
Let me state categorically that our policy has not changed.
South Pars is about Iran. We strongly oppose any investment in
Libya's petroleum sector and we will continue our efforts to
discourage and prevent it. We will continue to examine all such
investments under ILSA and take appropriate action if any
activity is found to be sanctionable. We have offered no
expectation, for firms from any country or group of countries,
about what result a review of national interests in an investment
case involving Libya might produce.

Under the terms of our April 11, 1997, Understanding with the
EU, we committed to work with the EU toward the objective of
meeting the terms for 9(c) waivers with respect to Libya. In
London, we indicated a willingness to engage the EU, as we
pledged last year, in a sustained process toward this end. But
we made no commitment whatever to grant waivers. We and the EU
also undertook to work together to achieve strict enforcement by
all countries of UN Security Council sanctions against Libya.

Finally, we fully recognize the dangers to our ally, Israel,
posed by the potential development of weapons of mass destruction
by its adversaries in the region. The Administration has worked
closely with Israel to address possible missile threats and will
continue to do so. Since 1988, the United States has jointly
funded the ARROW missile defense system; provided Israel with
space-based early warning notification of ballistic missile
launches; and jointly funded a feasibility study of the Israeli
Boost Phase Intercept Concept. We will continue to engage with
Israel to assure that our cooperation supports Israel's ability
to resist such threats.

India-Pakistan and Non-Proliferation

Let me turn now, Mr. Chairman, to the very difficult issue of
India and Pakistan. On May 11 and 13, 1998, India conducted a
series of underground nuclear tests. Unfortunately, and despite
sincere and energetic efforts by the President and other U.S.
officials to dissuade Pakistan from following suit, that country
conducted its own series of tests on May 28 and May 30.

Mr. Chairman, these actions represent a serious violation of
international nonproliferation norms, and a repudiation of
international efforts to contain the further spread of nuclear
weapons and pursue nuclear disarmament. More than that, they
could herald a dangerous and destabilizing competition between
the two countries, with extremely negative ramifications far
beyond the region.

Indian officials cited a variety of issues as their rationale
for testing -- unresolved border problems with China; concern
over China's ties with Pakistan; and what they view as continuing
hostility from Pakistan and Pakistani support for terrorism in
the disputed territory of Kashmir - all of which we found
unconvincing. We cannot see, Mr. Chairman, how any of these
concerns have been effectively addressed by testing nuclear
weapons.

The Administration deeply regrets where the events of the
past two weeks have brought us in our efforts to engage India and
Pakistan and to establish broad-based, cooperative relations with
the two major regional powers.

The actions taken by India and Pakistan have also triggered
the imposition of automatic sanctions pursuant to Section 102 of
the Arms Export Control Act, otherwise known as the Glenn
Amendment. These sanctions, initially designed to deter testing,
place stiff penalties on both countries, and will affect a wide
cross-section of our current activities including: development
assistance; military sales and exchanges; trade in specified dual
use goods and technology; U.S. financial assistance, guarantees,
and credits; loans and credits by U.S. banks to those two
governments; and denial of support within the International
Financial Institutions for loans.

We should not lose sight of the fact that the Glenn
Amendment's automatic sanctions were not intended solely to
punish, but more importantly to influence. The sanctions
threatened under the Glenn amendment were intended to serve as an
additional and powerful incentive to others not to pursue nuclear
arms. That both countries chose to go forward with their
decisions to test, knowing full well the monumental consequences,
underscores that ultimately sanctions may not deter nations from
actions that they view -- however incorrectly -- as fundamental
to their national security concerns. We will need to keep the
Congress fully informed. In the meantime, we will be looking for
India and Pakistan to take such steps as signing and ratifying
the Comprehensive Test Ban Treaty immediately and without
conditions; agreeing to halt production of fissile material and
participate constructively in negotiations toward a fissile
material cut-off treaty; agreeing not to deploy nuclear missile
systems; agreeing to maintain restraints against sharing
technology and equipment with others; and agreeing to a framework
to reduce bilateral tensions, including on Kashmir.

As this is the first ever instance in which we have invoked
the Glenn amendment, we have in some respects entered uncharted
territory. We have worked hard, and are keeping you and your
colleagues fully informed as we develop the mechanisms and
procedures for implementing these sanctions.

The act permits the Administration little discretion to
tailor its response to the specific situation, it includes no
waiver authority, and, once the automatic sanctions have been
imposed, it appears to provide no mechanism other than separate
Congressional action to lift them. Should we at some future
stage reach a consensus on lifting sanctions, we will also need
to deal with an underlying web of Pressler and Symington
amendment restrictions that still apply to Pakistan alone for
actions that well preceded the current crisis.

I leave to you, Mr. Chairman, to judge what a difficult task
that would be.

In conclusion, Mr. Chairman, I would like to go back to the
basic principles with which I began my testimony. I believe that
the issues I have laid out in my description of our actions on
Helms-Burton, ILSA, and in the cases of India and Pakistan,
underscore and reinforce the appropriateness of those principles.
In order for sanctions to be an effective policy tool, they must
be part of a coherent and well designed strategy. The
Administration and the Congress need to work together on a bi-partisan basis both to agree on and to advance our overriding
national foreign policy goals if we are to be effective.
Specific sanctions measures must be carefully targeted, and their
effectiveness weighed against their costs. We need multilateral
support. But the most essential, Mr. Chairman, is adequate
flexibility to allow the President to tailor our response to the
specific situation.